Why the Soviet Union Failed

For over a century, socialists all over the world have been haunted by the legacy of the Russian Revolution, and the Communist state that it created. The Soviet project began with noble intentions: it aimed to create an egalitarian socialist republic of workers and peasants, where exploitation and oppression would end once and for all. With hindsight however, we can say definitively that this revolution utterly failed to achieve its purpose.

The Russian Revolution was a failure in two respects. Firstly, it categorically failed to create the kind of free and equal society it claimed to be fighting for. Instead of ending oppression, the Soviet Union pioneered an entirely new form of oppression, one more totalizing than any that had come before it. In doing so, it did irreparable damage to the ideas of “socialism” and “communism” that animated the imaginations of so many reformers, idealists, and revolutionaries at the beginning of the 20th century.

The second and final failure of the Soviet project was its inability to overcome its shortcomings and transform itself into a freer, more open society. The democratic and market reforms of Soviet leader Mikhail Gorbachev in the late 1980s quickly led to the total unraveling of Communism, first in the Soviet satellite states of Eastern Europe, and then in Russia itself. The radical pro-capitalist reformer Boris Yeltsin was elected Russian president in 1991, and he implemented a program of neoliberal shock therapy, rapidly privatizing public enterprises and dismantling the Soviet welfare state. The Soviet Union officially dissolved itself later that year, signaling the final restoration of capitalism in Russia and Eastern Europe.

It’s very important for democratic socialists in the 21st century to understand the underlying causes of the failure of Communism, so that we can be sure to not make the same mistakes in the decades ahead. The Soviet project did not fail simply because of the incompetence of this or that Soviet leader. Rather, the Soviet Union’s failure can be traced back to the Russian Revolution itself.

The revolution betrayed

The leaders of the Russian Revolution, the Bolsheviks, were profoundly committed to the cause of socialism. In this respect they were arguably no different from the leaders of the more moderate socialist parties, like the German Social Democratic Party. The thing that distinguished the Bolsheviks from most other socialist parties in 1917 was their deep conviction that global socialist revolution was right around the corner, rather than a more distant prospect, and their willingness to do anything to achieve their aims.

Out of all the Bolshevik leaders, none of them was more instrumental in securing the Bolshevik seizure of power than Vladimir Lenin. As an orthodox Marxist, Lenin understood that Russia was not economically, culturally, or institutionally ready for socialism. Nevertheless, he was deeply convinced that it was necessary for socialists in Russia to seize state power, and hold onto it at all costs, in order to inspire the working class in industrialized Germany to start a socialist revolution there.

Unfortunately for the Bolsheviks, the German revolution never came. Isolated from the outside world, the new Soviet state instated increasingly brutal and repressive measures in order to cling onto power. It banned all opposition parties one-by-one, and eliminated every independent democratic institution in the country. The Bolshevik seizure of power also led to a convulsive and bloody civil war that left 10 million dead. By the end of the war the Bolsheviks presided over a country totally decimated by war and famine— there was no one who could offer a serious opposition to the new Soviet state.

The Soviet economic model

The newly established Soviet Union quickly consolidated itself into a totalitarian dictatorship under Joseph Stalin. The USSR was a one-party state, where any form of dissent or protest was quickly crushed by the secret police. The totalitarian power of the Communist Party would tolerate no internal opposition, and it brought the entire economy into direct state control. This highly centralized form of state ownership and planning led to severe economic problems throughout the Soviet Union’s existence, ranging from chronic shortages of commodities, bureaucratic inefficiencies, and a lopsided model of development which prioritized heavy industry and armaments over consumption goods.

But despite these inefficiencies, Soviet Communism was a coherent, viable social system whose components reproduced and reinforced one another over time. And once the Soviet Union had established itself as a rising great power and a viable alternative to capitalism, movements for social justice and national liberation consciously modeled themselves off of the Soviet example. In this way, Communism became a global phenomenon. Throughout the 20th century, wherever a Communist Party took power, it tried to establish the same basic kind of social system that existed in the Soviet Union.

János Kornai’s analysis of Communism

One of the best and most well-known analyses of the Communist system was formulated by the Hungarian economist János Kornai in the early 1990s. Kornai started his intellectual career as a reformer, making policy proposals that he believed could have made the Communist system more efficient and dynamic. But over time, he became more and more convinced that Communism could not be reformed. As the Soviet puppet states of Eastern Europe were collapsing, Kornai wrote his most famous book entitled The Socialist System: The Political Economy of Communism.

Kornai breaks down the Communist system into five “blocks” of institutional characteristics, ordered from the most to the least fundamental. He argued that the undivided power of the Communist party was the most essential feature of the Communist system, from which all else followed.

The theoretical model of society used by orthodox Marxists

For many socialists, this is a radical notion. It is at odds with the traditional Marxist view that economic relationships form the “base” of society, which shapes the political “superstructure.” But the history of Communist regimes should make it clear that the seizure of state power by the Communist party precedes the nationalization of the major industries. The Communist party despises private ownership and sees it as a threat to its power. Because the Party enjoys a monopoly on the use of violence in its territory, it has all the power it needs to shape property relations to suit its interests. As Kornai writes:

“It is not the property form— state ownership— that erects the political structure of classical socialism over itself. Quite the reverse: the given political structure brings about the property forms it deems desirable.”

This is an important point, which we will revisit later. The “original sin” of Communism was not the nationalization of the means of production per se, but rather the departure from democracy.

Kornai’s model of Communism

The shortage economy

Since virtually the entire economy is in state hands, the Communist Party must centrally determine prices and production targets for every commodity and service in the country. This means that prices are irrational, and have little to do with the cost of production or the scarcity of commodities. It also means that the managers of state-owned enterprises are remunerated based on how effectively they carry out the directives of the plan, rather than how well they serve consumers. They have no incentive to improve product quality or to produce above production targets in order to meet excess demand, since consumers have no choice but to buy products from the state.

Soviet citizens queuing up for limited food rations in 1990

This lack of incentive to “chase after” consumer demand creates a seller’s market, as opposed to the buyer’s market that usually prevails in capitalist economies. In a seller’s market, the producer does not need the consumer, but the consumer does need the producer. Because the state decides what is produced and in what quantities, consumers are systematically frustrated by chronic shortages of the commodities they desire. They are coerced into making forced substitutions between consumption goods, substituting those goods that are available for the ones they actually want.

Another important feature of Communist economies is the soft budget constraint. This means state enterprises are not constrained by the threat of going out of business if they don’t balance their books. The state will almost always bail out loss-making firms, since the bankruptcy of an enterprise will incur substantial costs on the state, and will reflect poorly on the higher-level bureaucrats who allowed the firm to fail. The soft budget constraint contributes to the pervasive inefficiencies and waste of resources that the Soviet Union was famous for.

Was there anything good about Communism?

Many socialists, while criticizing the totalitarian and anti-democratic nature of the Soviet Union, like to point out the positive aspects of Communism. To be sure, there were a few important achievements. Communist countries usually had very generous welfare provisions, guaranteeing healthcare, education, housing, and old-age pensions to all citizens. Most Communist states completely abolished unemployment, one of the persistent evils of capitalist society. Finally, many Communist states were able to achieve very high levels of economic growth.

But of these three achievements, only the abolition of unemployment can really be said to be something unique to Communism. Capitalist economies need unemployment to discipline workers and thereby prevent spiraling inflation. Under Communism, unemployment is simply seen as wasteful. The state does not need unemployment to discipline labor, since it is able to use overt violence and coercion to accomplish the same goal. Independent trade unions are almost always banned, and strikes are brutally suppressed. The abolition of unemployment under Communism certainly comes at a steep price for workers. And as far as welfare provisions go, many capitalist countries have built welfare states that rival or even surpass those of Communist regimes. It certainly isn’t necessary to bring the entire economy into state control before everyone can be given access to healthcare and education.

Command economies aren’t great for growth

The high levels of economic growth seen in Communist countries were due to the Communist party’s ability to use its undivided political power to enforce austerity on consumers, and funnel a large portion of national income into investment projects. In other words Communist states are able to exploit their workers even more than capitalists can, to force economic growth. But this growth is very unbalanced. Heavy industry and military production are overly prioritized, while light industry and production for direct consumption are left lagging behind.

Furthermore, the growth rates achieved by Communist countries were not exceptional. During the 20th century, we’ve seen examples of mixed-economy, state capitalist countries achieving consistently higher growth rates than Communist countries ever could. For example, South Korea, Taiwan, and Japan all had per capita GDP growth rates in excess of 6% for decades during the postwar period. Over the same period, the Soviet Union experienced an average per capita growth rate of just 3-5%.

This seems to show that, given our current level of technological development, the best recipe for growth is a strong, interventionist state managing a market economy, rather than the abolition of markets and private property altogether. The main reason for this is that investments are utilized very inefficiently in Communist countries compared to capitalist countries. State bureaucrats under Communism face little or no personal risk if a major investment project fails, while capitalists risk financial ruin if they make the wrong investment decisions. While the bureaucracy may confidently push forward with investment projects that may or may not constitute a prudent use of resources, capitalists must tread more cautiously, leading to higher efficiency.

Many capitalist economies, including Japan and Spain, were able to surpass Soviet per capita economic growth rates during the postwar period

These statistics should make it clear that in economics as well as in politics, the Soviet model was a failure. Needless to say, it is not something that democratic socialists should be trying to replicate in the decades ahead.

Friedrich Hayek’s failed prediction

Now that we’ve seen the serious failures of the Communist model, we can turn to the issue of how to avoid a replay of Communism in the 21st century. I have argued that the key is that we reaffirm our commitment to democracy. But we should be prepared to answer criticisms by right-wing anti-Communist authors, such as Friedrich Hayek, who have argued that it was state planning of the economy itself which led to Communist totalitarianism. For Hayek, socialism and democracy are simply incompatible. Hayek wrote in his book The Road to Serfdom:

Planning leads to dictatorship because dictatorship is the most effective instrument of coercion and, as such, essential if central planning on a large scale is to be possible. There is no justification for the widespread belief that, so long as power is conferred by democratic procedure, it cannot be arbitrary; it is not the source of power which prevents it from being arbitrary; to be free from dictatorial qualities, the power must also be limited.

Hayek, who was writing just before the end of World War II, made a bold empirical prediction. He predicted that the expansion of state intervention into the economy in liberal democracies like the United Kingdom would inevitably lead to the destruction of democracy in those societies. His message was that the road of social democratic reform was a road to serfdom.

Luckily for the socialist project, however, the history of the 20th century has conclusively proven that Hayek was wrong. Countries like France, which had widespread state ownership of industry and “indicative planning” of investment throughout the postwar period, have shown no signs of sliding into authoritarian rule. India, for all its problems, has maintained a strong democratic tradition while centrally directing its economy through Five-Year Plans. The most extreme case is Portugal, which nationalized most of its economy during its transition to democracy in the mid-1970s, but never showed signs of returning to dictatorship.

Furthermore, we know that societies with muscular welfare states and redistributive taxation, like Sweden and Norway, actually have healthier democracies than countries without such protections. As long as we socialists maintain our commitment to peaceful, incremental social reform through the institutions of representative democracy, there is no risk that our policies will inadvertently lead to Communist totalitarianism.

The alternative: piecemeal social engineering

The idea that liberal democracy and civil liberties are essential for protecting against tyranny was forcefully advocated by the famous Austrian philosopher Karl Popper. In Popper’s magnum opus on politics, entitled The Open Society and Its Enemies, Popper sought to diagnose the underlying causes of both Nazi and Stalinist totalitarianism. He pointed out that authoritarian ideologies tend to have in common the idea that they have unlocked the key to understanding history, and that they know what the future utopian society ought to look like in great detail. Because totalitarian ideologues are deeply convinced that they know the inevitable destiny of humanity, they feel justified in taking state power, by violence if necessary, and imposing their philosophy on their fellow citizens without any accountability or appeal.

Popper called this point of view historicism. Marxism-Leninism is a prime example of historicism, because it professes to hold the one true “scientific” method for understanding and predicting history. It concludes from this that it has the right to take state power, by violence if necessary, and to hold onto power indefinitely until it has established its vision of the Communist utopia. Nazism is another example. Nazis believe that all history can be explained by the struggle of different races for power. They further believe that the Aryan race is the master race, superior to all others, which will inevitably prove its supremacy by conquering Europe and ultimately the world.

Democratic socialists should not be historicists. We know that both capitalism and Communism have serious flaws, but we know very little about what alternative, superior models could emerge in the future. Socialists should recognize the fundamental uncertainty of our political project. We want to create a world where exploitation is abolished once and for all, but no such society has ever existed. We therefore have no rational grounds for being confident in any specific model for a future socialist society. All we can do is experiment with different ideas, expanding upon policies that have already been proven— like a robust welfare state, worker codetermination on corporate boards, and the nationalization of monopolies. We can try new things too, like a job guarantee, promoting worker-owned cooperatives, developing a prize system to spur innovation without private property, and much more. But what we can’t do is engage in utopian social engineering, confidently imposing an untested blueprint for society on our fellow citizens.

The alternative to the historicist approach is what Popper calls piecemeal social engineering. The idea is to focus on concrete social ills, and to formulate incremental reforms that can address these ills. If the new policy has negative effects, we can always reverse it through the institutions of representative democracy. Over time, we may be so successful at solving social problems that we will approach something that might be called a utopia. But the key is that we don’t know what the utopia will look like in advance, or how it will come about.

Democracy is essential for piecemeal social engineering because it is the only political system that allows rulers to be removed from power by the masses without violence. Through democracy, we can reverse bad policies and sack would-be dictators. Freedom of expression, association, and the press are also essential, because they allow the masses to criticize the policies of the government and organize against them. The combination of democracy and civil liberties constitute what Popper calls an open society. Democratic socialists should be the foremost proponents and defenders of the open society. The freedoms that the open society affords are a firm foundation for adding the positive freedoms socialists are fighting for (guarantees of healthcare, housing, employment, etc.)

The abject failure of Communism has led many to believe that we will never be able to transcend capitalism. But we have good reason to believe that the abundance necessary to build our socialist utopia is coming. Technological development over the next century promises to automate most involuntary work, making the employer-employee relationship and therefore capitalism obsolete. Let’s just not impose our utopia on society before it’s ready.